ViXS Reports Third Quarter Fiscal 2017 Results

TORONTO, ON--(Marketwired - December 14, 2016) - ViXS Systems Inc. (TSX: VXS) a pioneer and leader in advanced media processing solutions, reported today its third quarter fiscal 2017 results for the period ending October 31, 2016. All results are reported under International Financial Reporting Standards ("IFRS") and in U.S. dollars, unless otherwise specified.

Customer, Product and Corporate Announcements:

Completion of upgradeable MoCA2.0 acceptance testing with one of the large broadcasting and cable television companies in the United States, resulting in larger volume shipments and performance improvements to existing and new customers;

Growth in ViXS' Cloud & Video Delivery segment (XCodePro family of products) with multiple design wins including WellAV, a strategic corporate partner of Sencore, a major manufacturer of video delivery electronics equipment;

Design-ins with several new and follow-on customers for the XCode5 consumer transcoder products, growing the Over-the-Air (OTA) streamer and CordCutterTV markets with WiFi capabilities;

Nationwide broadcast trials for the Golden Reference Decoder (GRD3) box with HDR and 12-bit HEVC capabilities with partners including PBS and DTS;

Strengthened balance sheet, general corporate and working capital needs with the completion of non-brokered private placement offerings to a group of strategic investors including Morega Systems Inc, Vecima Networks Inc. and a North American subsidiary of a major Chinese electronics conglomerate, and new and existing investors raising aggregate gross proceeds of approximately $5.8 million (CAD$6.6 million); and

Appointed Phillip Deck to the Company Board of Directors adding significant operational expertise and technology investing experience;

"Revenue growth during the quarter was driven by multiple product lines XConnex, XCode and XCodePro. With a strong product portfolio in place, our strategy of focusing on our target market segments are yielding results. We remain confident this progress will continue into Fiscal 2018 and beyond," said Sohail Khan, President and CEO of ViXS.

Q3F17 Financial Summary:

Revenue for Q3 Fiscal 2017 of $8.3 million grew 61% year-over-year, or $3.2 million, from the $5.1 million recognized in Q3 Fiscal 2016, and a 5% sequential increase from $7.9 million recognized in Q2 Fiscal 2017. This revenue increase was primarily driven by higher sales of XCode5 and XConnex products, plus initial shipments of XCode 6800 chips.

Gross margin for Q3 Fiscal 2017 was 27.4%, a 3.9% sequential decrease from the previous quarter of 31.3%, primary due to the full impact from the amortization of mask/IP costs associated with the production tape-out of our XCode 6800 chip which commenced during the second quarter, which offset a modest sequential improvement in product mix. The product margin for Q3 Fiscal 2017 was 35.5%. Gross margin declined 16.5% points from Q3 Fiscal 2016 gross margin of 43.9% due to sales mix from XConnex and higher amortization costs;

IFRS comprehensive loss for Q3 Fiscal 2017 was $(3.1) million, or a loss of $0.05 per share basic and diluted. This is compared to a loss of $(2.7) million in the previous quarter, and a $0.1 million improvement from the $(3.2) million loss in Q3 Fiscal 2016;

Non-IFRS net loss for the current quarter (as defined in the Non-IFRS Financial Measures section) totalled $(3.0) million, a $0.2 million decrease compared to the $(2.9) million loss in the previous quarter, and a modest decrease from the $(2.8) million loss in Q3 Fiscal 2016. $(2.8) million loss in the third quarter of fiscal 2016. This continued fluctuation in non-IFRS net loss from operations reflects a combination of higher revenue, cost controls, and efficiencies we have been implementing in our operations along with fluctuations in foreign currency exchange rates and the fair value adjustments to convertible debt; and

As at October 31, 2016, the Company's cash and cash equivalents was $4.3 million.

Following the release of the results, management of the Company will host a conference call to discuss the financial results. The call will be hosted by Sohail Kahn, President & CEO and Charlie Glavin, CFO of ViXS.

The following table sets forth selected financial information derived from the Company's unaudited interim consolidated financial statements for the three months ended October 31, 2016 and July 31, 2016, as well as for the three months ended October 31, 2015. The selected financial information was prepared in accordance with IAS 34 in a manner consistent with the Company's annual financial statements. The following information should be read in conjunction with these statements and the accompanying notes.

Three-monthPeriod Ended

Nine-monthPeriod Ended

October 31,

July 31,

October 31,

October 31,

October 31,

Dollar amounts in U.S. dollars

2016

2016

2015

2016

2015

Amounts in thousands, except loss per share

Revenue

$8,268

$7,875

$5,138

$21,845

$21,074

Cost of sales

6,005

5,413

2,884

15,343

12,084

Gross margin

2,263

2,462

2,254

6,502

8,990

Operating expenses

Research and development

2,655

3,256

3,215

8,883

10,017

Selling, general and administrative

2,093

1,947

1,970

6,078

6,478

Total operating expenses (1)

4,748

5,203

5,185

14,961

16,495

Loss before finance costs and income and currency gains

(2,485

)

(2,741

)

(2,931

)

(8,459

)

(7,505

)

Other income (expenses):

Finance costs

(371

)

153

(89

)

(372

)

(336

)

Finance income

-

-

3

1

33

Currency gains

(144

)

(28

)

(173

)

(31

)

(133

)

Total other income (expenses)

(515

)

125

(259

)

(402

)

(436

)

Loss before income taxes

($3,000

)

($2,616

)

($3,190

)

($8,861

)

($7,941

)

Income tax expense

(9

)

-

(4

)

(18

)

(18

)

Net loss for the period

(3,009

)

(2,616

)

(3,194

)

(8,879

)

(7,959

)

Other comprehensive income (loss)

Item subject to reclassification

Exchange difference on translating foreign operations

(132

)

(60

)

11

(139

)

(7

)

Comprehensive loss for the period

($3,141

)

($2,676

)

($3,183

)

($9,018

)

($7,966

)

Loss per share attributed to common equity holders

.

Basic

($0.05

)

($0.05

)

($0.06

)

($0.15

)

($0.16

)

Diluted

($0.05

)

($0.05

)

($0.06

)

($0.15

)

($0.16

)

Weighted average number of common shares outstanding

Basic

61,253

61,151

50,377

61,254

50,377

Diluted

61,253

61,151

50,377

61,254

50,377

(1) Includes share-based transaction expense (recovery) of:

Research and development

$29

14

92

$300

125

Selling, general and administrative

159

96

111

528

(48

)

$188

$110

$203

$828

$77

BALANCE SHEET SUMMARY

As atOctober 31,

As atJuly 31,

As atOctober 31,

in thousands of US Dollars

2016

2016

2015

Cash and cash equivalents

$4,256

$2,182

$4,758

Trade accounts receivable

2,154

1,936

3,408

Inventories

2,688

2,928

3,339

Prepayments

3,269

2,495

1,422

Total assets

$23,230

$21,061

$24,386

Trade payables

$3,187

$2,935

$2,644

Accrued liabilities

1,705

2,140

3,224

Revolving bank loan payable

5,755

6,285

4,800

Deferred revenues

539

345

14

Total liabilities

18,169

15,840

12,958

Total liabilities and shareholders' equity

$23,230

$21,061

$24,386

NON-IFRS FINANCIAL MEASURES

In addition to disclosing results in accordance with IFRS as issued by the International Accounting Standards Board ("IASB"), the Company also provides supplementary non-IFRS financial measures as a method of evaluating the Company's performance. These non-IFRS measures are disclosed as a supplement to financial results prepared in accordance with IFRS in order to provide a further understanding of ViXS' results of operations from management's perspective. In particular, ViXS uses non-IFRS measures to provide investors with supplemental measures of its operating performance and highlight trends in its core business that may not otherwise be readily apparent solely from IFRS measures. ViXS management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess ViXS' ability to meet its future capital expenditure and working capital requirements. ViXS believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers.

Non-IFRS net loss is defined as total comprehensive loss before share-based transaction expense, exchange difference related to translating foreign operations, unrealized currency gains/losses and non-recurring or one-time items such as: share offering costs, listing fees, convertible preferred share revaluation adjustment, fair value adjustment on warrant liability convertible debt and provision for repayable government assistance. Non-IFRS net loss does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other companies. Non-IFRS net loss from operations should not be considered in isolation or as a substitute for comprehensive loss prepared in accordance with IFRS.

ViXS has provided a comparison of comprehensive loss to non-IFRS net loss in the following table:

Three MonthPeriod Ended

Nine MonthPeriod Ended

October 31,

July 31,

October 31,

October 31,

October 31,

2016

2016

2015

2016

2015

Comprehensive loss for the period

($3,141

)

($2,676

)

($3,183

)

($9,004

)

($7,967

)

R&D adjustments

Stock-based compensation expense

29

14

92

300

125

Provision for repayment of government assistance

(157

)

(54

)

(47

)

26

(901

)

Selling, general and administrative

Stock based compensation expense

159

96

111

528

(48

)

Legal fee settlement

-

Other Income/Expense adjustments

Listing Fees

-

-

-

15

Unrealized currency loss (gain)

(133

)

20

233

35

104

Other adjustments

Fair value adjustment on convertible debt and warrant liability

328

(276

)

-

98

-

Exchange differences on translating foreign operations

(132

)

(60

)

(11

)

(125

)

7

Non-IFRS net loss

($3,047

)

($2,936

)

($2,805

)

($8,127

)

($8,680

)

Non-IFRS EPS basic

($0.05

)

($0.05

)

($0.05

)

($0.13

)

($0.15

)

Non-IFRS EPS Diluted

($0.05

)

($0.05

)

($0.05

)

($0.13

)

($0.15

)

FORWARD LOOKING STATEMENTS

Certain statements in this press release which are not historical facts constitute forward-looking statements or information within the meaning of applicable securities laws ("forward-looking statements"). Such statements include, but are not limited to, statements regarding ViXS' projected revenues, gross margins, earnings, growth rates, the impact of new product design wins, market penetration and product plans. The use of terms such as "may", "anticipated", "expected", "projected", "targeting", "estimate", "intend" and similar terms are intended to assist in identification of these forward-looking statements. Readers are cautioned not to place undue reliance upon any such forward-looking statements. Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause ViXS' actual results to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Accordingly, there can be no assurance that forward-looking statements will prove to be accurate and readers are therefore cautioned not to place undue reliance upon any such forward-looking statements.

Factors that could cause results or events to differ materially from current expectations expressed or implied by forward looking statements contained herein include, but are not limited to: our history of losses and the risks associated with not achieving or sustaining profitability; the Company's dependence on a limited number of customers for a substantial portion of revenues; fluctuating revenue and expense levels arising from changes in customer demand, sales cycles, product mix, average selling prices, manufacturing costs and timing of product introductions; risks associated with competing against larger and more established companies; competitive risks and pressures from further consoldiation amongst competitors, customers, and suppliers; market share risks and timing of revenue recognition associated with product transitions; risks associated with changing industry standards such as HEVC (High Efficiency Video Codec), HDR (High Dynamic Range) and Ultra HD resolution; risks related to intellectual property, including third party licensing or patent infringement claims; the loss of any of the Company's key personnel could seriously harm its business; risks associated with adverse economic conditions; delays in the launch of customer products; price re-negotiations by existing customers; the Company's dependence on a limited number of supply chain partners for the manufacture of its products, legal proceedings arising from the ordinary course of business; ability to raise needed capital; ongoing liquidity requirements;and other factors discussed in the "Risk Factors" section of the Company's Annual Information Form dated March 31, 2016, a copy of which is available under the Company's profile on SEDAR at www.sedar.com. All forward-looking statements are qualified in their entirety by this cautionary statement. ViXS is providing this information as of the current date and does not undertake any obligation to update any forward-looking statements contained herein as a result of new information, future events or otherwise except as may be required by applicable securities laws.

About ViXS Systems Inc.

ViXS is a pioneer and market leader in designing revolutionary media processing semiconductor solutions for video over IP streaming solutions, with over 482 patents issued and pending worldwide, numerous industry awards for innovation, and over 33 million media processor shipped to date. ViXS is driving the transition to Ultra HD 4K across the entire content value chain by providing professional and consumer grade chipsets that support the new High Efficiency Video Coding (HEVC) standard up to Main 12 Profile, reducing bandwidth consumption by 50% while providing the depth of color and image clarity needed to take advantage of higher-resolution content. ViXS' XCodePro 300 family is ideal for Ultra HD 4K infrastructure equipment, and the XCode 6000 family of system-on-chip (SoC) products achieve unprecedented levels of integration that enable manufacturers to create cost-effective consumer entertainment devices.

ViXS is headquartered in Toronto, Canada with offices in Europe, Asia and North America. VIXS™, the ViXS® logo, XCode®, XCodePro™, XConnex™ and Xtensiv™ are trademarks and/or registered trademarks of ViXS. Other trademarks are the property of their respective owners. For more information on ViXS, visit our website: www.vixs.com.

Forward-Looking Statements Statements in this press release that are not historical facts constitute "forward-looking statements" within the meaning of applicable securities laws. Such statements include, but are not limited to, statements regarding ViXS' projected revenues, gross margins, earnings, growth rates, the impact of new product design wins, market penetration and product plans. The use of terms such as "may," "anticipated," "expected," "projected," "targeting," "estimate," "intend" and similar terms are intended to assist in identification of these forward-looking statements. Readers are cautioned not to place undue reliance upon any such forward-looking statements. Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause ViXS' actual results to be materially different from historical results or from any results expressed or implied by such forward-looking statements.